KR: Chapter 8

1
KR Chapter 8

• Capacity

2
Chapter Outline

• Introduction
• Measures of capacity
• Capacity unit
• Peak capacity vs. effective capacity
• Bottleneck
• Economies of scale
• Diseconomies of scale
• Capacity strategies

3
Economies of Scale

• Spreading Fixed Costs
• Reducing Construction Costs
• Cutting Costs of Purchased Materials
• Finding Process Advantage

4
Economies and Diseconomies of Scale
Figure 8.2
5
Capacity Strategies
Forecast of capacity required
Planned unused capacity
Capacity increment
Capacity
Time between increments
Time
(a) Expansionist strategy
Figure 8.3
6
Capacity Strategies
Forecast of capacity required
Planned use of short-term options
Capacity increment
Capacity
Time between increments
Time
(b) Wait-and-see strategy
Figure 8.3
7
Expansionist Strategy

• Concept
• Large, infrequent jumps in capacity
• Stays ahead of demand
• Advantages
• Lost sales unlikely
• Economies of scale (construction and learning)
• Preempt competition

8
Wait-and-See Strategy

• Concept
• Small, frequent jumps in capacity
• Lags behind demand, relaying on short-term
  operations
• Advantages
• Minimizes risk
• Greater flexibility

9
Linking Capacity and Other Decisions

• Competitive Priorities
• Quality Management
• Capital Intensity
• Resource Flexibility
• Inventory
• Scheduling